Tim Hortons faces more franchisee ire —a $50M lawsuit in the U.S.

A St. Louis-area Tim Hortons franchisee has closed two of his restaurants and blames the coffee chain’s new parent company for allegedly reneging on his original development deal and pushing him to open more than five times the number of restaurants than agreed to in the original deal.

Franchisee Eric Sigurdson says that he was forced to close two of his six Tim Hortons locations over the U.S. Thanksgiving weekend due to his ongoing legal battle with Restaurant Brands International Inc., operating in the U.S. as Tim Hortons USA, Inc.

Sigurdson is president of St. Louis-based Show Me Hospitality LLC, which filed a US$50-million lawsuit in Florida in July against Tim Hortons USA, alleging breach of contract.

Show Me had entered into a franchise agreement with Tim Hortons’ former owners in early 2014 to open 40 restaurants over five years. Before the first location in St. Louis had opened, Tim Hortons was acquired by Burger King and the two had merged to become Restaurant Brands International, controlled by the Brazilian investment firm 3G Capital.

The entrepreneur alleges that Restaurant Brands then demanded that he invest an additional $20 million and commit to developing more than 200 restaurants in 10 years in the St. Louis area.

When Sigurdson asked the new owners to honour the original commitment, he alleges Tim Hortons USA stopped approving Show Me’s suggested new locations, failed to extend branding and advertising when Show Me entered the St. Louis market and threatened to terminate Sigurdson’s area development agreement.

“It saddens us to close restaurants,” Sigurdson said in a statement released Monday through his law firm, Dady & Gardner of Minneapolis, Minn.

“The agreement we signed with the original ownership group was fuelled by a deep passion for the Tim Hortons brand. Our franchisor’s repudiation of its obligations under the original agreement derailed our business plan and scared off great new partners, leading us to have to evaluate our operations and locations, both now and in the near future.”

Lawyer Scott Korzenowski of Dady & Gardner said Restaurant Brands’ demands would have meant Sigurdson open one Tim Hortons restaurant for every 15,000 people in the territory over a ten-year period. “To put this into perspective, McDonald’s has approximately 130 restaurants in the St. Louis region, which it built over several decades,” Korzenowski said in the statement.

Sigurdson’s claim “represents a very small number of restaurants, occurred in the ordinary course of business and we strongly deny the claims brought against us,” Tim Hortons said in an emailed comment on Monday.

“On development, our goal has always been to accelerate the number of Tim Hortons restaurants in the U.S. and around the world, as we strongly believe that scale and market penetration increases convenience for our guests, improves guest satisfaction and drives sales and profitability for the system as a whole.”

Restaurant Brands has come under scrutiny for butting heads with its Tim Hortons franchisees, a group of whom formed the Great White North Franchisee Association in March to address an escalating list of complaints with head office as a collective. The Association says more than half of Tim Hortons franchisees are now members of the group.

Last month, a number of Canadian franchisees filed an $850-million class-action lawsuit against Restaurant Brands International, alleging the restaurant operator was intimidating franchisees and forcing some owners out of their restaurants. It followed a $500-million class-action suit filed in June by the franchisee association that alleged mismanagement of their advertising fund and escalating product costs.

Restaurant Brands has mapped out an aggressive expansion plan for Tim Hortons in the U.S., where the chain has about 700 restaurants in 16 states after decades in the market, and plans to expand the brand around the globe as it has with Burger King. About 82 per cent of Tim Hortons’ restaurants are located in Canada and about 15 per cent are located in the U.S., with the remainder in newer markets such as the Middle East, the Philippines and the U.K.